Publication 946 (2023): How To Depreciate Property

This guide explains how to recover the cost of business or income-producing property by claiming deductions for depreciation using the Modified Accelerated Cost Recovery System (MACRS).

What is Publication 946?

Publication 946, titled "How To Depreciate Property," is a resource provided by the Internal Revenue Service (IRS) to help taxpayers understand and claim deductions for depreciation on business or income-producing property.

What is Depreciation?

Depreciation allows businesses and individuals to deduct the cost of certain assets over their useful life, spreading the cost out over several tax years. This reflects the gradual wear and tear, obsolescence, or decline in value of the property over time.

Who should use Publication 946?

This publication is beneficial for:

A. Business owners: They can use it to understand how to claim depreciation deductions for various business assets, such as machinery, equipment, and buildings.

B. Individuals: They can use it to understand depreciation for income-producing property, such as rental buildings or investment vehicles.

What information does Publication 946 cover?

A. Qualifying property: It outlines the types of property eligible for depreciation, including:

  1. Tangible property (physical assets) with a determinable useful life (expected to wear out, become obsolete, or lose value over time).
  2. Used in business or income-producing activity.
  3. Not land (land generally is not depreciable).

B. MACRS (Modified Accelerated Cost Recovery System): It explains the primary method used to calculate depreciation deductions, including details on:

  1. Recovery classes: These categorize assets based on their useful life.
  2. Depreciation methods: Different methods, like the General Depreciation System (GDS) and the Alternative Depreciation System (ADS), can be used depending on the asset type.
  3. Conventions: These determine how depreciation is claimed throughout the year (e.g., mid-month convention).

C. Figuring depreciation: It guides taxpayers on calculating their depreciation deductions using the information mentioned above.

D. Additional considerations: Publication 946 also addresses:

  1. Recapturing depreciation: In certain situations, a portion of previously claimed depreciation might need to be reported as income.
  2. Special rules for specific assets: The publication highlights specific rules for various asset types, such as vehicles and intangible property.

For the current year's Publication 946, click here.